Texas Ag Lenders Worry as Drought Threatens Farmers with $1.5B Loss

The prolonged drought in Texas has put many of the state's cash crops at risk, spreading anxiety among agriculture lenders.

The Texas Agricultural Extension Service is projecting at least $1.5 billion in losses of direct agricultural value, while $4.6 billion would be squeezed out of the state's economy in the next 18 months.

"There is a major problem out there," said Mike Mauldin, president of $35 million-asset Security Bank, Idalou. "The crops just aren't growing."

One-third of the state's cotton acreage was not even planted this year, and the farmers who were able to plant are seeing mixed results.

"Some of the irrigated crop is actually progressing very well," said Kirk Thomas, senior vice president of $190 million-asset State National Bank of West Texas, Lubbock. "But with the lack of rain, it is costing a tremendous amount to grow it."

The current problems set in after a year of mixed results, when production was good but prices were down and very little money was made in cotton. That was after a 1996 drought had cost farmers an estimated $1.6 billion.

"We see a tremendous credit crunch looming," said Steve C. Verett, executive vice president of Plains Cotton Growers Inc., Lubbock. "There are a lot of producers out there who are not going to have the money to pay their loans."

"With the almost back-to-back droughts, Texas farmers and ranchers are facing increased risks in their business," said Roland D. Smith, economist for the Extension Service, based in College Station.

Mr. Mauldin and Mr. Verett will be part of a delegation to Washington this week to discuss with elected representatives the plight of farmers and the need for long-term solutions to stabilize the industry.

Scores of Texas bankers have also written to Rep. Charles W. Stenholm of Texas, the ranking Democrat on the House Agriculture Committee, urging him to press for a low-interest farm loan authorization.

Short-term help is on the way. Congress last week approved a $500 million emergency package for farmers. But that would cover only one-third of Texas' projected agricultural losses.

"Most farmers have insurance, but that usually only covers 60%," Mr. Mauldin said. "We need disaster payments to get these people on their feet."

Though they are sympathetic, bankers say they are reluctant to extend additional credit to those hit hardest. And many of their debt-laden borrowers simply cannot take on another loan.

"More credit is not always the answer," said Mr. Thomas of State National. "I have seen numerous growers take low-interest loans in times of disaster, only to wish they had never borrowed the money later. The debt piles up real quick."

When Texas farmers are hurting, the whole economy feels it. One in five jobs in the state is, in some way, related to agriculture. Mr. Mauldin said that after a 1991 drought, nonfarm businesses suffered the worst long-term damage.

"The farmers all got through it with government aid," he recalled. "But the bank was still busy providing disaster loans to all the other businesses in town."

In other parts of the state, where livestock is king, farmers are dealing with another problem: plummeting prices.

Hyman D. Sauer, president of First National Bank of Eldorado, 220 miles southeast of Lubbock, said his farm customers cannot find grazing for their animals. Many farmers are pushing their entire herds to market to avoid having the animals starve.

"In simple supply and demand terms, that means that they are not getting very good prices," the banker said.

Still, Mr. Sauer said he believes his clients have the capital reserves to survive.

"They know to be conservative, even when times are good, to prepare for years like this," he said. "It is their way of life."

Richard Ware 2d, president of $1.1 billion-asset Amarillo National Bank, said this year's trouble in the cattle industry-which produces the dominant commodity in his region-should be cushioned by the successes of the recent past.

"We see lean times every few years in the cattle industry, so we try to be ready for them," Mr. Ware said.

14-Day Free Trial

The increasing adoption of virtual card payments by accounts payable departments has created an unex­pected complication for suppliers: more friction in the processing, posting and reconciliation of payments and receivables. The root of the problem is that most suppliers rely on a manual approach to processing e-mailed virtual card payments. Suppliers are forced to balance their organization’s need for operational efficiency and control with rising customer demand to pay with a virtual card. But a new breed of tech­nology enables suppliers to process virtual card payments straight-through, addressing the needs of buyers and suppliers. This paper details the growth of electronic business-to-business (B2B) payments, shows how manual approaches to processing virtual card payments cause friction in accounts receivables, describes a way to process virtual card payments straight-through, and highlights the benefits of friction­less payments.